Dealers across Canada are scrambling to meet a surprising surge in demand for vehicles as new-car assembly lines across North America continue to ramp up and used vehicles remain in short supply.
“If you drive through a dealer’s lot today, you’re going to see a lot of asphalt — 2020 has been a very challenging year for product,” said Dan Murray, dealer principal at Murray Chevrolet in Winnipeg and one of four principal shareholders of the Murray Automotive Group, with dealerships across Canada.
The shortages “are pretty much across our entire lineup” but are especially acute on full-size trucks, he said.
After assembly plants shut down for two months in spring, most are now operating at or near pre-pandemic levels, said Sam Fiorani, an analyst at AutoForecast Solutions.
Factors such as model-year changeovers are also hampering production, while the pandemic has pinched dealers’ ability to restock lots in other ways, he said.
In its September COVID19 market update, Canadian Black Book (CBB) said the pandemic also halted lease returns and trade-ins and limited the number of repossessions as customers who lost their jobs were granted time to get their payments back on track. CBB expects a surge in lease returns and repossessions through the end of the year, which might ease shortages on the used-car side.
The rebound from the darkest days of the pandemic caught much of the industry by surprise, said Trent Hargrave, dealer principal at Riverside Dodge in Prince Albert, Sask.
He weathered the storm by maintaining his orders and planning for a sales uptick.
“We looked at the long-term ramifications and decided the economy wasn’t going to be in free-fall forever.” Hargrave expects annual sales to be at about 85 per cent of a typical year.
“We can live.”
Hargrave said one indication dealers are under pressure is the geograph-ic spread of peers calling him looking for certain models. Normally, those calls come from retailers in Saskatchewan and neighboring provinces but now are being fielded from as far away as Ontario and Vancouver Island, he said.
PRICES JUMP
The shortage isn’t necessarily translating into higher used-vehicle profits. CBB estimates gross margins have shrunk nine per cent, while Hargrave said his used-car acquisition costs are up 10 to 15 per cent, an increase he said dealers are just eating for now.
“We’ve seen a spike in [wholesale] prices, contrary to what we were expecting,” Hargrave said. And he isn’t able to pass the cost onto customers because of the precarious state of the economy.
Kurtis Hicks, general manager of Sherwood Ford in Sherwood Park just outside Edmonton, said the stronger-than-expected demand and the plant shutdowns, combined with Ford retooling its plants for the 2021 F-150, have put full-size pickups in short supply.
“The COVID ripple effect has also been terrible for parts supplies in our shop, causing a lot of back-ordered parts with no ETA. It’s a bit of a disaster, but we are navigating it as well as we can.”
While most assembly plants in North America resumed production by midMay, capacity also has been limited by physical distancing and absenteeism. Brian Murphy, vice-president, research and analytics, at CBB, said respecting COVID-19 restrictions means workers stay home when they have symptoms.
“Until a vaccine is available and people have had it — assuming [the vaccine] works — we’re going to continue to see [inventory shortages]. I do think it’s temporary, but ... how long is temporary?”
Murray said the automotive industry had been bracing for a glut of used vehicles, expecting that rental companies hit hard by the drastic drop in air travel would be dumping fleets into the market to raise cash. That didn’t happen.
Instead, the shortage has driven up trade-in values, which is increasing demand for new vehicles. “We’re definitely seeing people getting out of their vehicles early because the trade-in values are so strong,” he said. “The only challenge is we don’t have a lot of selection to offer them on a new vehicle.”
All these factors translated into a rebound that few would have predicted, Murray said.
“Our June and July was even better than June and July of last year.”
POPULAR MODELS
Shahin Alizadeh, CEO of Downtown Automotive Group in Toronto, said people are keeping their vehicles longer. He’s hoping a strong autumn on the new-car side will help change that. “There aren’t enough vehicles coming off of the old cycle,” Alizadeh said. His group’s used inventory in August was limited to what the company predicted it would sell, something he said is unprecedented.
“There’s usually a 50 per cent overage. It’s a tight situation, and it’s not necessarily going to get better.”
Automakers are noticing the squeeze as well. Nissan Canada President Steve Milette said some dealers have been unable to get certain trim levels of hot sellers such as the Rogue crossover.
The pandemic has also driven a surge of first-time buyers anxious for an alternative to mass transit, Milette said. Sales of the new Sentra — which was hampered first by the rail blockades in February and then by the pandemic in March — have benefited from that fear.
“We saw this happen in China, where a lot of people were buying their first vehicle to stay away from public transit, and we thought this would be an opportunity that would crop up here in Canada, and it did,” Milette said.
“When I say some models are experiencing a shortage, Sentra is one of them.”
At Volkswagen Canada, the company is seeing strong sales in its certified pre owned program, spokesman Thomas Tetzlaff said.
“Our July was up four per cent over last year. It was our best July ever.”
